Summary

The whole idea of retiring one day at a time is that you don't go from 40 to zero hours overnight. You don't go from working full-tilt one day to being totally retired the next.

If you can manage to do it in stages, you can minimize the emotional and financial shock that retirement can bring. You have more resources to fall back on, as you move from working full time to retiring full time. You have more time at your disposal to watch over your retirement budget, to make sure it is doing what it is supposed to—that is, supporting you in retirement in such a way that your money will last as long as you do.

Remember, the first stage of retiring one day at a time begins when you are very young and continues thru the various stages of your life. Your retirement planning spans six distinct stages. They are:

* Stage #1—20-35: The Starting-Out Years. * Stage #2—35-45: The Setting-Up Years. * Stage #3—45-55: The Spending Years. * Stage #4—55-65: The Accumulation Years. * Stage #5—65-75: The Transition Years. * Stage #6—75 + : The Senior Years.

Each stage calls for emphasis on a different aspect of retirement planning and a different approach to investing. Each stage has its own set of issues to be addressed. Instead of making one retirement plan, and hoping it will last you all your life, you keep making new plans as you grow older, your goals and circumstances change, and your time horizon grows shorter.

Instead of having a plan for retirement—that's set and never changed—you have a plan which keeps evolving over the years. That's what life-stage financial planning is all about—starting your plans when you are young and modifying them, again and again, as you age. That way you never have a financial plan that is out of date.

How to Retire in Stages

Do your retirement planning in stages because that ensures that you always have a plan that is up to date and current, and appropriate to your stage in life.

You can also make retiring more transitional if you retire in stages—rather than all at once. What would these stages be?

Retirement Stage #1: Still working full time. You are planning for retirement—saving and investing your money toward the day when you will retire. You are enrolled in all the tax-sheltered plans you are eligible for. But actual retirement is sometime in the future. For now, you are thinking about retirement and planning for it, but you are working at your job full time. Your lifestyle depends completely on how much you are earning.

Retirement Stage #2: Early transition stage. You may have retired from your old job, but now work part time. You may be part of a phased-retirement program at work, in which you still work for your old employer, but are working fewer hours. Either way, part of your income is from the work you are doing—part time from your old employer or for someone new—plus Social Security and possibly a pension. Your lifestyle depends not only on your benefits and pension, but also on your ability to continue working as you move beyond retirement.

Retirement Stage #3: Late transition stage. You have completely retired from your old job. You are drawing a full pension from your former employer and probably receiving Social Security as well. You may be dipping into some of your retirement savings accounts. But, ideally, you have established a post-retirement career—working for someone else, or in a business you have created. Your pension and Social Security income is supplemented by income from your post-retirement job. Your lifestyle depends partly on your pension and Social Security, but also on the income-generating capacity of your post-retirement work.

Retirement Stage #4: No longer working. You retired some time ago from your old employer and now the post-retirement career you created is slowing down. You may be drawing some income from your post-retirement work, but the bulk of your income is from your pension, Social Security, and your retirement savings plans, which you are finally beginning to draw from. More and more, your lifestyle will depend on how much you have saved for retirement and on how well you have managed your savings.

The Pluses of Phased-In Retirement

It's always better to take things one step at a time than to plunge in all at once.

The financial adjustment to retirement is obviously much easier in a phased-in retirement than if you try it cold turkey. You don't have to go from living 100 percent from salary income to living 100 percent from retirement resources overnight. You get to do it in stages. That makes it easier to correct any mistakes in your planning.

The emotional adjustment to retirement is also easier. Having a transitional job to turn to makes the adjustment much easier than if you go from 100% work to 100 percent retirement overnight.

The phased-in retirement lets you test-drive your assumptions, while you still have time to make necessary modifications. Maybe the family home is proving to be too big and too costly to maintain. You had planned to stay put. Now you decide to buy something smaller. You had planned to take two cruises a year in retirement. Reality is that two cruises a year eats up too much of your retirement income. You settle on one nice cruise each year.

The more you plan ahead, the greater the likelihood that you will be able to create a phased-in retirement for yourself. The time to start planning for post-retirement work is many years before you actually retire.

BONUS TIP

Starting Early Makes a Difference

LET'S ASSUME you start contributing $100 a month to a tax-deferred retirement savings plan and continue until you retire. Let's further assume that your money in the plan earns an 8 percent annual rate of return. Here's how your wealth would build up over the years:Years / Wealth05 / $7,60310 / $18,77515 / $39,18920 / $59,30825 / $94,74530 / $146,815

MONEY TIP

In other words, if you started late and had only 20 years to contribute to the plan, your nest egg would be $59,308. But if you started earlier and had 30 years to contribute to the plan, your nest egg would be $146,815—almost 150 percent more.